Title

Ethics-based financial transactions: An assessment of Islamic banking

Date of this Version

2011

Document Type

Book Chapter

Publication Details

Citation only

Ariff, M. (2011). Ethics-based financial transactions: An assessment of Islamic banking. In M. Ariff & M. Iqbal (Eds.), The Foundations of Islamic Banking - Theory, Practice and Education,11-38. Cheltenham, United Kingdom Edward Elgar Publishing Limited.

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2011 HERDC submission. FoR code: 150201

© Copyright Mohamed Ariff and Munawar Iqbal, 2011

ISBN

9781849807920

Abstract

Extract:

This is an analytical chapter with the modest aim of assessing a 48-year old experiment commonly termed Islamic finance, which describes the profit sharing and risk-sharing contracting in financial transactions as being ethically consistent with human welfare. Profit-earning after risk-sharing in debt contracts (as has always been the case throughout history in equity contracts) has been practiced in financial dealings in settled societies for over four millennia, before the birth of modern banking practices which are debt-based on no risk-sharing, with pre-agreed fixed interest charges. In just 48 years, the ethics-based Islamic finance has gained a respectable foothold in some 76 countries, including seven major financial centers, as will be supported by evidence in this chapter. Its presence is felt in many countries. With the Bank of England’s adoption of a landmark liberal regulation in 2002, after careful study over many years, to accept Islamic financial institutions as another niche in banking, the pace of growth of adoption of this experiment has substantially accelerated.

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This document has been peer reviewed.